To Rent or to Buy? That Is the Question

Depending on your income level and the area you live in, renting versus buying is an important consideration. For some, buying a house just is not a reality. This is especially true for people who do not make enough money to buy a house, lack the stability, or are just not ready to own a home or live in densely populated urban areas. Urban area homes can be hard to come by and are often more expensive than they would be in other more rural areas.

But, for people that are lucky enough to consider the option of buying or renting, there are some important things to consider. In the end, the decision to rent a home or to buy a home depends on numerous factors which go beyond simple mathematics and economics. There are also numerous pros and cons to consider as well.

One of the largest factors to consider is to determine how fast home prices have risen, how fast they are projected to rise in the future as weighed against how fast rent prices have risen, and how fast they are projected to rise over the same amount of time. The New York Times has a pretty nifty guide to help determine whether or not it is worth it to rent or buy a home.

In most cases, people will actually save more money if they buy a house rather than rent one. This is because rent prices tend to increase at a higher rate than mortgage payments. Also, the payments towards a house are technically an investment also, while renting a house has no investment in it whatsoever. But, in most cases, only people who have the financial and credit history and proof of stability can buy a house. Most others must rent due to various financial circumstances.

The funny thing is that, in most cases, a person who is renting a home is actually paying the same amount—if not more—in rent payments as they would applying the same amount of money to a home mortgage payment. So, a person may be surprised that they could actually afford to buy a home. The savings can even be more when they efile their taxes and see the tax breaks and other incentives are added to the home buying pot.

The only thing is, the financial benefit will usually only start to get into the positive end after five or six years. So, if a person does not plan to be at a stationary location for at least five or six years, buying a home is probably not the wisest choice for them.

A person who is renting a home may also notice that a portion of their monthly rental payment may actually be going towards various home expenses as well (like electricity, water and sewage bill). A home-buyer will notice that the monthly payments are actually less than they were under a rental agreement. So, when bills and other expenses are factored in, the tool cost of buying a home is actually cheaper than renting.

In the end, if it’s possible, and you plan on staying in the same area for at least 5 years, the benefits of buying a home instead of renting one may out way the downsides.

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Brad writes on a handful of topics, including arbitration and personal finance.